AMC Networks Inc. (AMCX) Q2 2013 Earnings Report, Transcript and Summary

Good morning. My name is Susan, and I will be your conference operator today. At this time, I would like to welcome everyone to the AMC Networks Second Quarter Earnings Conference Call. [Operator Instructions] Thank you. I would now like to turn the conference over to Seth Zaslow, Senior Vice President of Investor Relations.

Thank you. Good morning, and welcome to the AMC Networks Second Quarter 2013 earnings conference call. Joining us this morning are members of our executive team: Josh Sapan, President and Chief Executive Officer; Ed Carroll, Chief Operating Officer; and Sean Sullivan, Chief Financial Officer. Following a discussion of the company's second quarter 2013 results, we will open the call for questions. If you don't have a copy of today's earnings release, it is available on our website at amcnetworks.com. This call can also be accessed via our website. Please take note of the following. Today's discussion may contain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that any such forward-looking statements are not guarantees of the future performance or results and involve risks and uncertainties that could cause actual results to differ. Please refer to the company's filings with the Securities and Exchange Commission for a discussion of risks and uncertainties. The company disclaims any obligation to update the forward-looking statements that may be discussed during this call. Further, we will discuss non-GAAP financial information. We believe the presentation of non-GAAP results provides you with useful supplemental information concerning the company's ongoing operations and is appropriate in your evaluation of the company's performance. Please refer to the press release and related footnotes for GAAP information and a reconciliation of GAAP to non-GAAP information, which we'll refer to on this call. I would now like to turn the call over to AMC Networks' President and CEO, Josh Sapan.

Good morning, and thank you for joining us. I'll provide a brief summary of our financial performance followed by an update on the business, and then turn it over to Sean Sullivan for some greater financial detail. We delivered solid financial results in the second quarter and the fundamentals of our business remain strong. In the quarter, the company reported 16% growth in revenue and 9% growth in AOCF. For the 6 months of the year, the company grew revenue 16% and AOCF grew 14%. Our top line revenue growth continued to be directly stimulated by the success of our investment in original programming across all 4 of our networks. As we've discussed on prior calls, we've been steadily and significantly increasing the investment in our programming. As we look out to the remainder of 2013, we expect this investment to continue, as we believe our content will increasingly define the performance of each and all of our networks. Last month, a very nice note. AMC Networks received a total of 39 primetime Emmy nominations, the most in the company's history, and the most for any basic cable programming group. With 26 of those 39, AMC the channel, tied as the most Emmy-nominated basic cable network. Sundance Channel received 10 nominations, the most in the network's history, reflective, we think, of the investments Sundance has made in its content. And IFC received 2 nominations. In an increasingly competitive business, this continued recognition for our programming and our networks underscores the strength of our strategy to identify and deliver high-quality original programming that really does connect with our target audiences. Advertisers also continue to respond to our programming. In the second quarter, the National Networks grew advertising revenue 14% over the prior year. During the recently completed advertising upfront market, we took advantage of its success and of our growing ratings for our original programming. We went to market for the first time with all 4 of our networks, which allowed us to perform well in what was a healthy market, generally, for cable channels. We saw significant demand for our scripted series, and we're able to attract new, quality advertisers to our shows. We further diversified our ad revenue base. We added volume, and importantly, we increased price. At AMC, the largest of our 4 channels, our original programming continues to deliver audiences that are particularly attractive to advertisers. Of note, Mad Men aired in the second quarter and continued to be a real magnet for advertisers seeking an upscale audience. Looking ahead, we will have 3 scripted drama series on AMC starting this coming weekend, the most we've ever had on the network at one time. We will finish out the final season of Breaking Bad, a show that I think, it's fair to say, has become one of the most celebrated series on all of television. Breaking Bad will lead into a new crime drama called Low Winter Sun. We'll also introduce something called Talking Bad, a new live companion talk show to Breaking Bad, done in the similar vein as our Walking Dead aftershow which is called Talking Dead. Talking Dead has performed extremely well for us, and takes advantage of the large audience engagement stimulated by the dramatic scripted show that precedes it, so we think that plot for Breaking Bad makes a lot of sense. Finally, the third season of our Western series, Hell on Wheels, one of the network's highest-rated series, will debut this Saturday, August 10, opening up a new night of original programming on AMC on Saturdays. We think there's a real opportunity to create a new destination night for the network based around the large audience that comes to us specifically for Westerns. The network recently announced 2 new scripted series for air next year, Halt & Catch Fire, from the producers of Breaking Bad, and the other called, Turn, a revolutionary war drama. We are quite pleased with these projects and have several others in various stages of development. Each of our other networks, WE tv, IFC and Sundance Channel are enjoying solid momentum as well. We continue to ramp up our programming investment in order to make each of those channels stronger and, ultimately, make our portfolio of networks more valuable. As with the case with AMC, developing strong, distinctive content that really resonates with audiences is a multiyear undertaking, and we're at a different stage with each of our channels in terms of implementing this approach. At WE tv, ratings performance in the quarter was led by a combination of new and returning originals, including a show called Braxton Family Values, a consistent top performer for the network, and a new show called Marriage Boot Camp, which we just renewed for a second season. Ratings for this new series increased steadily over its run, helping WE tv become the #1 women's network for young women 18 to 49, and 18 to 34 on Friday nights when it plays. We're pleased to be bringing the series back early next year. WE tv also recently announced it is entering the scripted area with a new original series called The Divide, to premiere sometime next year. The series has great talent attached to it. As a network that competes with a range of female-focused channels, most of which trade largely in nonfiction or so-called reality programming, we think there is a true opportunity for WE tv to make a great mark in the dramatic scripted area. IFC continues to push into developing alternative comedies. IFC's new series called Maron, starring comedian and popular podcast host, Marc Maron, performed quite well in the first season and we just renewed it for a second season. We have 2 other shows set to air in the coming months, a show called The Spoils of Babylon, executive produced by and at times starring, Will Ferrell; and another show, The Birthday Boys, executive produced by Bob Odenkirk and Ben Stiller. As I mentioned before, IFC received 2 Emmy nominations for our show, Portlandia, which is a bit of a signature show for the channel. At Sundance Channel, as we've previously discussed, we are transitioning to a traditional ad model in the fourth quarter of this year, following the path previously taken by AMC, WE and IFC in years past. We believe there is a great opportunity for Sundance under an ad-supported model, and we're already seeing great advertiser interest in the channel. We think much of that comes from the success we've had in quickly establishing the network as a new destination for high-quality scripted content. On Sundance in the quarter, we premiered a series called Rectify, from the producers of Breaking Bad, which received enormous critical acclaim and attention. We are bringing that series back for a second season next year. And we also premiered a dramatic miniseries called Top of the Lake, starring Elisabeth Moss. We have several other scripted projects currently in production at Sundance Channel. A new scripted series that we wholly own, called The Red Road, and a miniseries called The Honourable Woman, starring Maggie Gyllenhaal. We think these 2 projects are quite strong additions to Sundance's expanded scripted slate. Our ability to produce content that is valuable and monetize-able is increasingly at the core of this strategy, and is happily driving our top line performance. On the distribution side, National Networks grew revenue by 17% in the second quarter over the prior-year period. As many of you know, included in this line item is a combination of revenues we've received from our traditional MVPD partners, cable satellite and telco companies, as well as newer developing revenue streams from the distribution of our shows on various ancillary platforms such as digital and international. Full year revenue continued to grow at a healthy rate. The results in the quarter benefited from the renewal of 1 affiliation agreement that we finalized late in the quarter. Over the past 18 months or so, we've renewed a significant portion of our affiliate base at terms that we've been pleased with and have resulted in an acceleration of our rate of growth from what was low-to-mid-single digits to mid-to-high single digits. In the next few months, we have a pair of agreements up for renewal with much smaller MVPDs, as we are focused on continuing to realize what we believe is fair value for our networks, we believe it's possible that we might encounter some disruption in our service in connection with these renewals as we look to move them in line with our other agreements. Under any circumstances, however, we don't expect any potential disruption to have a significant impact on our financial results as these platforms represent a very small percentage of our total affiliate base. On the international front, we continue to move ahead with what we believe is a disciplined expansion of our footprint of channels outside of the U.S. In the second quarter, we announced an agreement with DirecTV, the largest pay-TV distributor in Latin America, to launch Sundance Channel in that region for the first time, expanding now our overall footprint outside the U.S. from what was first Canada to Eastern, Western Europe, Asia and, now, Latin America. With that, I'd like to turn the call over to Sean Sullivan, who will provide some further detail on the financial results for the quarter.

Thanks, Josh, and good morning. Turning to the results for the second quarter. Total company revenues grew 15.8% and AOCF grew 8.7%. Second quarter revenue and AOCF growth was driven by increases at our National Networks. At the National Networks, revenues increased 15.9% or $48 million. National Networks' AOCF increased 7.8% or $11 million versus the prior-year period to a total of $146 million. Advertising revenues increased 13.7% to a total of $147 million. Though we experienced year-over-year advertising growth at all of our networks, AMC was the primary contributor. AMC benefited from the performance of its original programming, most notably, Mad Men and The Killing, despite a decrease in the scripted original programming hours versus the prior-year period. Distribution revenues for the National Networks increased 17.5% or $31 million to a total of $206 million versus the second quarter of 2012. As Josh discussed, the second quarter results reflected the aggregate impact of several items. On the affiliate side, we saw a low double-digit increase in revenues. Second quarter growth included the impact of the renewal of an affiliation agreement that was finalized in the quarter. For the 6 months of the year -- in the first 6 months of the year, our affiliate revenue growth was in the mid-to-high single digit range over the prior year period. Second quarter results also reflected home video revenue related to the release of season 3 of The Walking Dead; EST, or electronic sell-through revenues related to AMC's scripted originals; and the international availability of our wholly-owned scripted originals, notably, The Walking Dead and Rectify. Moving to expenses. Expenses increased 22.3% or $38 million in the quarter, principally due to increased programming and marketing costs versus the prior year period. The increase in programming expense is principally associated with our continued investment in original programming across all 4 of our networks. The second quarter also included a charge of $7 million related to the write-off of various programming assets, primarily at Sundance Channel, as we prepare our programming schedule for the transition to a traditional advertising model in the fourth quarter of 2013. The increase in marketing expense related to the timing of originals on AMC as compared to the prior year, as well as the increase in Sundance Channel related to the premiere of Rectify. Turning to the International and Other segment. Revenues for the second quarter increased $4 million to $30 million. The AOCF deficit improved $1 million versus the second quarter of 2012 to $9 million. The revenue performance in the second quarter principally reflects an increase in our international affiliate fees. The improvement in AOCF in the second quarter reflected the increase in revenue, a $2 million year-over-year decrease in professional fees related to the VOOM lawsuit, as we did not incur any meaningful cost related to VOOM in the second quarter of 2013. These 2 items were partially offset by an increase in expenses at IFC Films. Total company net income from continuing operations for the second quarter include a $133 million litigation settlement gain related to VOOM HD. As a result, net income from continuing operations was $136 million or $1.87 per diluted share. Excluding the gain, net income from continuing operations would've been $54 million or $0.74 per diluted share. This compares to $41 million or $0.57 per diluted share in the second quarter of the prior year. In terms of free cash flow, the company reported negative $154 million in free cash flow for the 6 months ended June 2013. This amount includes approximately $234 million of payments related to the VOOM HD settlement. Excluding the VOOM-related payments, free cash flow for the first 6 months of the year was $80 million. The $234 million of VOOM-related payments consisted of $175 million payment that was made in early April to Cablevision and approximately $59 million in net tax payments that were made in the first half of the year. As a reminder, $81 million of tax payments related to VOOM were required in the first quarter, based on the preliminary allocation of settlement proceeds. We recouped $22 million of this amount for reductions in our second quarter tax payments as a result of the final allocation of settlement proceeds, and we do expect to recoup approximately an additional $40 million for reductions in future tax payments for the last 6 months of the year. So for the 6 months ended June 2013, total tax payments were $112 million, and this amount includes the $59 million of VOOM payments I just mentioned. Cash interest was $56 million and capital expenditures were $14 million. Turning to the balance sheet. As of June 30, AMC Networks had $2.2 billion of outstanding debt, with cash and cash equivalents of $449 million, for a net debt position of $1.7 billion. Our leverage ratio was 3.5x based on LTM AOCF of $501 million. The 3.5x leverage ratio is down from 5.4x on June 30, 2011 and 3.7x in the prior quarter. While we do expect to continue to delever, I did want to reiterate what Josh said in his remarks. We are focused on investing on our core business, as we think this will generate the greatest return for our shareholders over the long term. Accordingly, we will continue to increase our investment in programming and marketing across all of our channels. And as a consequence to this, there will be continued variability in both AOCF growth and margins. We believe that this strategy and our disciplined approach to targeting investments, will allow us to consistently grow AOCF over the long term as we take advantage of the various opportunities we have to monetize our content. So with that, I'd like to move to the question-and-answer portion of the call. Operator, please open the call for questions.

[Operator Instructions] Your first question comes from the line of Bryan Goldberg with Bank of America.

I just got 2 quick ones, on advertising and 1 on the balance sheet. With respect to Breaking Bad, given the buzz around the final 8 hours of the show, can you help us think about your ability to monetize potential ratings strength? How much of the ad inventory for a show like this is already committed to upfront buyers versus scatter availability? And I guess, could you address this dynamic for Talking Bad as well?

This is Ed, Bryan. On Breaking Bad, we anticipated that the finale of the series would be a big event. It was sought after by our advertisers. We sold the lion's share of inventory in the upfront. We did hold back from inventory for the scatter market. And so we have a few units that we have held.

Okay, and is that similar for Talking Bad as well?

The percentages are a bit different, but the philosophy is the same.

Okay, and then, with respect to advertising inventory across all your channels and the Sundance launch coming this fall, will all 4 channels be fully loaded with advertising minutes per hour or --

Yes, all 4 channels will be on a clock, but each channel will not be on the same clock, but they will all have a standard advertising format, a mix of national, local and promo time.

Okay. And then, just for Sean, you guys took in your share of VOOM cash. I noticed you didn't pay any debt down in the quarter. I was wondering what your thoughts were on using some of this cash for debt paydown in the back half of the year?

Yes, Bryan. Again, I think that, as I said, we'll continue to invest in the business, not only in AMC but the other 3 channels as they migrate their strategy and incremental investment. We didn't pay down in the quarter. I don't think that's necessarily a signal for the back half of the year. We have a very attractive LIBOR plus 150 on the Term Loan A, so the after-tax effective rate of that debt is very compelling. But certainly, we'll continue to organically delever, and we'll look for opportunities to pay down, to the extent we don't think there's better use of cash with either internal, external opportunities. So nothing really more to say than that at this point.

Your next question comes from the line of Michael Morris with Davenport and Company. Michael C. Morris - Davenport & Company, LLC, Research Division: A couple of questions. First, on the affiliate fees side, Josh, you said -- you've said again, kind of mid-to-high single digit growth rate. Based on what you know in the agreements that you have established, as we look out into the future, beyond 2013, can you help us understand whether that rate -- we should expect that rate to slow as those contracts play out? Or whether that's kind of a sustainable rate?

Sure. I think that rate is a function of all of our agreements, obviously. We renewed, over the last 18 months or so, 6 or so, representing probably over 50% of our universe. So and the average deals, they range, but call it anywhere from 3 to 7 years. So that's a big part of our universe that, in the timeframe you asked about, would be under contract. The newer ones that would be done, would be a portion of the total universe. And depending upon where they fall, would influence that mass, slightly up presumably, or slightly down. So I wouldn't give you a specific prognostication except to say that, during the time period you asked about, the bulk of the math is already written and determined. So if there is variability, it would be modest. Michael C. Morris - Davenport & Company, LLC, Research Division: Okay. And then on the marketing cost growth, you mentioned both timing and the new -- dispensed with the new programming for Rectify. Can you provide a little more detail on both of those elements to it? I assume the timing is: Mad Men at the start of the quarter; maybe Killing in the back end of it. What I'm trying to figure out is a little more specificity, I guess, on marketing per show, given that we're moving into a period of having more original hours in the coming quarter.

The way to -- I think the way -- the best way to think about it is that, in general, there is a marketing spend with the initiation of either a new series or a returning series at the beginning -- at -- when it begins. It is the best way to build audience. So if you -- if one looks at the calendar of premieres, around the time that premiered, there is a bit of a heavy up. In spending -- in producing that show, and that can be figured into the spend in the calendar. It's pretty regular and fairly predictable. Michael C. Morris - Davenport & Company, LLC, Research Division: Is the amount of the spend pretty consistent between Mad Men and The Killing and Rectify? Is it -- and we could expect the same thing for the kind of shows coming out in the third quarter, or does it vary?

It's a little bit of both. There's a range, depending upon our calibration of how much incremental audience we think we can yield as a consequence of a greater spend. So it stems -- in a sense, we do a mini ROI on the marketing spend around the series. But there's also a bit of a floor and ceiling so that variability occurs within a range, if that makes sense to you. Michael C. Morris - Davenport & Company, LLC, Research Division: Yes, it does. All right --

And Mike -- just to add, Mike, you are correct. The timing of The Killing and Mad Men versus prior year, I think on a 6-month basis, there probably wasn't a material change in marketing dollars as you look forward, for adding shows, you would expect the aggregate dollars to increase in terms of marketing. So I mean, I guess, that's the way I would look at it, if you're trying to model it.

Your next question comes from the line of Vasily Karasyov with Sterne Agee. Vasily Karasyov - Sterne Agee & Leach Inc., Research Division: Sean, I wanted to follow up on your remarks on cost, continued investment in programming. So if I do back of the envelope math here, it looks like that National Networks expenses grew 20%, that's both technical and actuating, and SG&A in the first half of the year. So is there anything that you see that will change that rate of growth in the second half of the year?

I don't know if I -- again, as we invest incrementally in content, I think I said this in my remarks, there will likely be variability, yes. If we have more original hours and more scripted shows, not only on AMC, but now on WE and now on Sundance, you would expect the rate of growth to increase. I think as a company, we've been very disciplined and we've been able to monetize and maintain our margins with some variability as a result of that strategy. So I think the aggregate dollars will increase. I think if you look back over the last several years, our content investment has increased in terms of amortization, in excess of 20% on a CAGR basis. So I think that as we add new shows, and we think it's the right thing to do, it's likely that those percentages will either stay or expand. But we think we've been able to successfully monetize the content. We obviously understand the revenue streams and the timing of recognition of revenue, so there will be some lumpiness. But all in all, we feel good. So hopefully, that's helpful color. Vasily Karasyov - Sterne Agee & Leach Inc., Research Division: It is helpful. But just a quick follow-up. And if you look at it on a 1-year basis, not quarter-to-quarter, factoring the revenue trajectory in it, so would it be correct to say that, that variability, on a full year basis shouldn't -- you are mindful of the impact on the margins on a full year basis and that, that is something that you factor into the decisions?

Correct. We're mindful. We talk about it all the time. And again, every 12-month period. But again, we are in an investment cycle, given our growth and trajectory. So but we are mindful of margins, but Appreciate that there could be some pressure on margin as we ramp up and monetize the content across the multiple platforms. Vasily Karasyov - Sterne Agee & Leach Inc., Research Division: Okay, and one last question. The -- you are deleveraging at a pretty quick clip here. So philosophically, what kind of leverage do you think a company with a business model like AMC Networks should have? And I mean, it's no secret that some of your peers believe that 2.5x to 3x is where that range is.

Yes. Again, I think the management team's philosophy is that, we think leverage less than where we are today is preferred. We understand we are, and expect to deleverage at a rapid rate. Again, we're cognizant of where our peer groups are in terms of their leverage and target leverage. But again, we're still, I think, in a high-growth mode, an investment mode. So we think, again, we'll continue to naturally deleverage. But as of today, we haven't, we haven't necessarily set a target other than less than where we are today.

Your next question comes from the line of Todd Juenger from Sanford Bernstein.

This is Dave Beckel in for Todd. I was wondering if you could speak more specifically about the upfronts. And particular, with respect to Sundance Channel and some of the programming there. And maybe if you could also provide more color on the magnitude of audience guarantee increases and pricing you experienced?

Sure. So on the up and overall I'd say, we were pleased with the performance of all the networks. We saw gains on both volumes and CPMs. Demand was largely driven by our original content, that was led by the series on AMC. And we continue to benefit from some industry trends such as fewer migration from broadcast to cable and closing the CPM gap, again, particularly where our originals were concerned. Regarding Sundance, this is the first upfront that we sold ad inventory in all 4 networks at one time. We think we saw a benefit for that, particularly for Sundance. So Sundance had previously been in a sponsorship format. So as we sold in this upfront, in the ad sales format, we saw significant increases on a percentage basis; but in absolute dollars, not that significant yet. It's sort of a startup conversion to ad sales for us, as we've done previously with our other networks.

Our next question comes from the line of Ben Swinburne with Morgan Stanley.

This is Ryan Fiftal, on for Ben. Josh, I was wondering if you could comment on what you're seeing in a competitive environment for finding new content and filling your growing development pipeline? I believe -- I think Time Warner said that HBO is developing more pilots right now than any time in their history, and I know looking at Starz, they're ramping their originals pretty quickly. So that's only 2 examples, but I'd imagine generally, it's pretty competitive out there.

Yes, it is. There are more outlets developing scripted series than there have been in the past on the cable front. So because of their success, and we've enjoyed that success. I think -- and we were doing, as Sean mentioned, more content development and production by a significant factor than we ever have, including pilots. So we're in that, too. I would offer that I don't think that the word competitive necessarily defines the greatest challenge. And if you don't mind a broad answer, there's not a limited commodity of great TV shows, and they're not ascertainable before the fact, it's not like sports rights that get bid up. So if one looks at the successful shows, most successful shows on our channels and others, I think what you might find is that they were not necessarily known to be successful before they occurred. Some come with creative people who have enormous pedigree, and some come with creative people who were developing that pedigree. And so I think the greatest challenge is actually not competitive bidding, which it could seem at first blush. But rather, how keen our ability is to identify what's most appropriate for AMC, Sundance Channel, WE tv and IFC, and to organize a set of financials that support that, that allow us to do it at the level that we need, with the right return. So our greatest, interestingly, challenge, is the identification and development of great material and great people. I don't think it's specifically competition.

That's interesting, too. Do you think it's a function, maybe, compared to say, 5 years ago, that supply of content is rising to meet demand? Or is it that you think that there was good content out there that was just maybe being under-monetized in the past. And now that there are more people mining it, and mining it effectively, the market's just grown?

I think that -- this is going to be an expansive answer. That the broadcast networks always were the biggest developers of TV shows, and remain so in terms of volume, as an industry. The quality of scripted dramas, particularly that have predominated on cable and captured a lot of attention, are newer to the little system of television. I think, and we think, that they have been buoyed particularly by technology, which is that people are able to find them on demand, both cable on-demand and SVOD, that gives them a more comfortable time to view and appreciate dramas that are more nuanced. And frankly, they've risen to greater attention as a consequence of the technology. So they were, earlier, potentially there, but they were not being realized in the technological system of fully linear television. The fact that it's now significantly influenced by that which is on-demand on all platforms has made this so-called third age of golden television emerge. And that's, I think, what's happening.

Your next question comes from the line of Ben Mogil with Stifel. Benjamin E. Mogil - Stifel, Nicolaus & Co., Inc., Research Division: So just 2 questions. In terms of anything on the expenses that was noteworthy, is just the $7 million Sundance program write-down, is that about it?

That's correct.

Yes, that was mainly Sundance, they were relatively low-profile behind any series.

Correct.

I think there was 1 AMC show in there as well. Benjamin E. Mogil - Stifel, Nicolaus & Co., Inc., Research Division: Josh, larger question for you. As you went through the upfronts, when you've got Breaking Bad rolling off, and you've probably got 1 season left with Mad Men. Obviously, with respect to confidentiality, please talk to us a little bit about sort of how you're talking to advertisers? Because in some ways, this is the same conversation we'll have with investors, about sort of how you see the world going, once these 2 big shows roll off. And I'm kind of curious, is it more -- we may not have a couple of shows that initially rate anywhere near what these ones do. But we think in the aggregate, we'll have sort of more shows that, together, will rate around that number and give a sort of more like Scripps or Discovery, where it's less about 1 or 2 shows, and more about the overall, kind of ratings profile? Curious, sort of what you can share with us?

Sure. I think that -- I think one note, of course, it begins with The Walking Dead, which is, by far and away, the most significant audience deliverer that we have across all 4 channels. The Walking Dead is young. We hope that zombies really do live, either forever or at least a decade. And so we're -- we just finished year 3, and you may note that we have intended to do many more episodes of The Walking Dead this season, and we have other scripted dramas. And in addition, as I mentioned in the prepared remarks, we have a companion series to Walking Dead that holds a substantial amount of that audience, right after Walking Dead. So in terms of real delivering inventory, it's a very significant piece of it. We have some terrific new dramas coming on. We mentioned some of them. I don't want to be too enthusiastic about shows that have not aired, but we piloted them, we've seen them and we're really quite pleased with Low Winter Sun, with Halt & Catch Fire, with Turn, with The Divide, with The Red Road on Sundance and The Divide, first time on WE tv. And frankly, advertisers are sharing our enthusiasm. So as we have -- I know they're seasoning to play out of which on the Mad Men is to be fully determined. And Walking Dead, we have this great moment, an explosive moment, of the end of Breaking Bad which we will hope to take maximum advantage of. And I think we're in a position of great momentum. And we'd like to keep that momentum. Of course, that's a creative challenge, but we feel pretty good about the challenge and we feel particularly good about the expansion of our programming initiatives, not only on AMC, where they're ramping up and up, but on Sundance Channel where we've caught some real wind of late. And we mentioned those 10 Emmy Awards, they're a nice symptom, we think, of quality. And on WE tv, which has done great nonfiction and now turns to scripted in The Divide, which we think is a killer show. And IFC, which we've sort of began with Portlandia. We have Comedy Bang! Bang! on. We have this show called Maron, we have The Spoils of Babylon coming on, we have The Birthday Boys. So we think we're in a strong position. Not everything will hit, but we think it's a pretty good moment for us, and advertisers are sharing the view today.

Your next question comes from the line of Anthony DiClemente with Barclays.

This is James Kopelman calling in for Anthony. I have one bigger picture for Josh. We heard comments from one of your peers about what the ecosystem might look like, if they were not unbundling over time, but just smaller, customized bundles and where different content, which -- whether it's sports, broader stuff, serialized, premium, et cetera. I'm curious where you think your content, which is obviously highly differentiated, fits into the picture in this type of scenario? And how do you think it would fare as consumers had, say more ability to customize packages? And any color on how you think it should play out, or sort of how you purchase from a strategic perspective?

Sure. So James, we do think about that, and we don't know exactly what changes might occur under what timeframe and in what form. One could speculate and develop a range of scenarios. As we think about it, frankly, offensively and defensively, we do think that, if there is greater consumer discretion in what comes into the home, in any flavor it takes, what will matter, to state the obvious is, choice and desirability and perception of value. And so we are programming each of our channels that way now, and it's why, as Sean mentioned, we are increasing our investments in these shows that work in today's world where we monetize through affiliate fees in the current system and through ad sales. But actually, increasingly monetize through the sale of those shows through subsequent SVOD windows a year later, on Netflix and others and through iTunes, and through sale to international outlets in our own channels. So in a certain sense, we're getting a bit of a preview of that possibility through the ancillary market's perception of our content. Specifically, if a show sells very well in iTunes, you can say that show is valuable. And if it was part of our offering in a less structured environment, it would be valuable. So we think that the trend is, no matter which specific way it goes, to have stuff that people really like, really want, really identify with and really value.

Your final question comes from the line of Amy Yong with Macquarie.

Can you just outline your SVOD and electronic sell-through strategy? How important is it to your growth and does it impact to your mix of licensing versus growing content?

Sure. We think that we've developed an approach to SVOD in which we window it substantially after, in most cases, its premiere in our linear channels, so that it is good economically, it is good for the current ecosystem. And it actually, in many cases, we actually think helps the performance on linear, because we brings new audiences to it. On transactional or iVOD or what everyone might call it, we think if done right, it can actually help the perception of a cable bundle value. So we think it's a part of our -- I hope I'm answering your question, a part of our world, a part of our economic world, and it will continue to be so. And so we do anticipate those revenues where we attend to them, and it's part of the fabric of what we do.

Great. Thank you, everyone, for joining us on today's call, and for your interest in AMC Networks. Operator, you may -- can now conclude the call.

Thank you for participating in today's conference. You may now disconnect.